Byline: Jeff Siegel

NEW YORK — The judge in the Barneys bankruptcy Thursday urged the retailer and its Japanese partner, Isetan, to settle their rent differences once and for all or risk a ruling on April 24 that could halt progress in the case and hurt both sides.
The warning came just four days before both sides are scheduled to meet with a court-appointed mediator to try to reach an agreement on the rent battle.
Barneys admits it is not capable of making the nearly $25 million in annual rent payments to Isetan but claims Isetan agreed to shred the leases in exchange for a 27 percent stake in the business.
Isetan, the landlord on Barneys flagship stores in Chicago, Beverly Hills and on Madison Avenue, claims there is no deal to swap ownership of the buildings for equity in the business. It is asking the court to force Barneys to pay rent during Chapter 11.
The rent issue came to a head in February, but they reached a truce calling for Barneys to make partial rent payments to Isetan and forcing them to discuss a long-term solution to the sticky problem.
That truce, which included the appointment of Stephen Case as mediator, is scheduled to expire on April 19.
In his warning, Bankruptcy Judge James Garrity said the case could come to a “halt” if he must decide the issue.
Garrity was referring to the possibility that he could order Barneys to pay the rent. Such a ruling would sidetrack Barneys, Isetan, Chemical Bank and other creditors from the reorganization process by forcing them to immediately restructure the debtor-in-possession financing deal. There is a stipulation in Barneys debtor-in-possession facility with Chemical that prohibits Barneys from paying rent on the three flagships.
During a break in the hearing, John Campo, counsel to Barneys, took exception to Garrity’s remarks. Campo told WWD that Barneys reorganization would not be in jeopardy, regardless of what is decided next month.
“For someone to suggest that the case could shut down based on what happens on the 24th is incorrect,” said Campo. “The judge is not aware of all nuances of the DIP agreement.”
Campo added that Barneys would be able to pay “some rent” under its DIP facility.
The judge’s warning came during a hearing to decide the separate issue of when Barneys should decide which stores to keep. Barneys wants an extension until the end of the case, but an Isetan lawyer told the judge it would be unfair to grant an indefinite extension because the truce on the rent issue is set to expire on April 19. Such an extension could hurt Isetan in its mediation talks. — Fairchild News Service

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